Thursday, November 10, 2011

Chinese bubbles deflating or bursting?

There are a number of stories out there on Chinese inflation slowing.  A number of them are focusing on items such as the price of pork. What they often don't give you is the backdrop behind the ease in inflation.

Bloomberg News, 8 November 2011

China’s inflation slowed by the most in almost three years, giving officials more room to support growth as the property market cools, Europe’s crisis threatens exports and a credit squeeze hits small businesses.

Consumer prices rose 5.5 percent in October from a year earlier, the statistics bureau said on its website today. The 0.6 percentage point decline from September’s rate was the biggest since February 2009. Producer prices rose 5 percent last month, less than any of 24 analysts forecast.
China Lending Shrinks as Wren Wrestles With Inflation Over 6%
Bloomberg News, 14 October 2011
Premier Wen Jiabao’s government must weigh whether to ease monetary policy after data yesterday showed exports grew at the slowest pace in seven months and as small businesses complain of a credit squeeze. Asian policy makers face a “delicate balancing act” as inflation remains elevated while Europe’s sovereign-debt crisis threatens growth, the International Monetary Fund said yesterday.

Natasha Brereton-Fukui, Wall Street Journal, 2 November 2011

SINGAPORE—Manufacturing activity in parts of Asia sputtered in October, data showed Tuesday, reflecting strains on the region's export-dependent economy from Europe's debt crisis and efforts to cool inflation that has plagued several countries this year.

A slowdown in Asia's economy could prompt more countries to reverse, at least partly, some of the monetary tightening taken over the past few years to clamp down on price pressures.

Shanghai Daily, 3 November 2011 (Hat tip: NC)

HONG Kong's home sales fell for a 10th straight month, dropping by half in October from a year ago as buyers put off purchases.

The value of transactions last month declined 50 percent to HK$22.5 billion (US$2.9 billion), the city's government said in a statement on its website yesterday. Sales of residential units shed 2.2 percent from September, it said.
Greenspan was credited with a soft landing in 1994.  It is what made his reputation.  In retrospect, a financial bubble, much like the later residential construction bubble, may been what kept us out of a slump.  In the case of the construction bubble, you had to keep increasing the size of the hot air balloon to make up for the previous burst balloon.  Real estate, even in a modern economy, is by far the largest value asset in an economy.  Once you pop that bubble, it is hard to find another one to jump to.

Good luck to the Chinese.

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